Department for Business, Innovation and Skills
1 Victoria Street
24 November 2011
Dear Mr Jackson,
Investor Relations Society – Response to BIS consultation on the future of narrative reporting.
I have pleasure in enclosing the Investor Relations Society’s response to the above consultation.
The Investor Relations Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community.
The Investor Relations Society represents members working for public companies and consultancies to assist them in the development of effective two way communication with the markets and to create a level playing field for all investors. It has over 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250.
The Annual Report is an important tool for communicating a company’s historic performance. It forms part of a suite of systematic, regular communications to investors. However its usefulness to those investors over recent years has been compromised by inclusion of new mandatory information aimed at transparency, but in fact achieving complexity. The Annual Report has attempted to become a transparency panacea, and in spite of the best efforts of listed companies and their advisors, can be cluttered with irrelevant information needed by regulation.
As a consequence, investors tell us that the annual report is useful as a double check for the models maintained for each company, but that the primary source of that data is through prelims, or other company materials.
We support ideas that can help the Annual Report become again a communication tool, and in particular give management the freedom to present information relevant to the Company’s performance. We think that the proposals to introduce a Strategic Report will particularly help, allowing Directors to tell the company’s story in way that is unique to them, and of relevance to their stakeholders.
We also support the new Annual Directors Statement which will enable the presentation of other useful information, not directly relevant to understanding the current period performance to be shown in a more appropriate format.
However we would wish to avoid the route of adopting for the ADS to become a 20F or Document de Reference, with boxes – relevant or not – to be completed. In our view, the temptation to require disclosure – material or not to the company – simply to achieve comparability should be resisted. The ADS needs clarity just as much as the Strategic Report.
However we are concerned that the timetable for implementation is aggressive and could require changes to systems in order to collect additional information.
Finally, we note that several regulators – both in the UK and outside - are looking at narrative reporting and any framework developed by the UK Government should be harmonised with them. Future proofing UK regulation against an insular approach – at a time when UK companies have majority overseas ownership and/or listings – is essential.
Our detailed response to your individual questions is attached below. If you have any further maters which you would like to discuss with us please do not hesitate to contact me.
The Investor Relations Society
3 Bedford Street
London WC2E 9HD
020 7379 1763
Published: 25 November, 2011